As you think of your future and contemplate your retirement (or a period of time that you have more financial flexibility), you begin to wonder what your life will really be like. Who will you spend time with? Will you work? How much free time will you have? It is very natural to visualize, or dream, about these times. You picture yourself in desirable places with people you want to be with or doing things you want be doing.

For many people, even those with modest assets and modest expectations, these can be liberating and pleasurable thoughts. They provide you motivation to work hard, save money, and prepare for your future. So when we work with our clients to help them plan for the future, we review the various aspects that impact their ability to retire on their own terms. For almost all of our clients, the most important variables, in order of importance, are:

1) Your Spending Level. How much you spend in retirement, your budget, is the single most important variable in whether or not you will accomplish your goals. People that have modest expenses in their retirement years have much more flexibility than those that don’t. What is interesting about this is that many people do not drill down on this figure until right before retirement or right after they have retired. More recently we have increased our focus on this aspect of our clients’ circumstances.

2) Your Retirement Date. Choosing to retire early, or delaying your retirement, will have a significant impact on whether or not you outlive your money. Anyone who decides to, or is willing to, work later in life or integrate part-time work into their retirement takes quite a bit of pressure off of their finances. Of course, the early retiree needs to have more confidence in their budget and larger assets. And it doesn’t hurt to be open to looking for work if things don’t turn out like you had planned.

3) Your Longevity. This is a feature of life that is almost totally out of your control. Tragically, many people that have saved and prepared for their future pass away right before or just beginning their retirement. Almost all of us personally know an individual or Family that has suffered through this. While we would all hope for many healthy years later in life, a long extended life can also put stress on any financial plan.

4) Your Retirement Savings. How much you are able to accumulate in savings is clearly important. Someone with $10 Million in funds can (hopefully) live a retirement free from financial worry while someone with $100,000 in funds is virtually living paycheck to paycheck. Most middle class people fall somewhere in between – but much, much closer to the $100,000!

5) Your Interest Rate. Finally, how much you earn on your investments certainly impacts what you can do. However, we do not believe this is as important as the first four variables. Therefore, we encourage our clients to focus more energy on doing what they can to control their budget, evaluate their retirement date, and save for their future. What you earn on your funds is by no means inconsequential, we just don’t think it should be your highest priority.

All of these factors are clearly connected and for any given individual, one of them may be far more important than the others. In addition, we all have to make trade-offs. And how our life unfolds can change our plans and priorities.